Key differences include:

Income-based valuation (NOI & cap rates)
Longer due diligence periods
More complex leases and contracts
Higher down payments
Business risk tied to tenants and operations

Commercial value is driven primarily by income performance, not emotion or comparable sales. Increasing NOI through rent growth or expense reduction directly increases value.

Commercial properties are typically valued using:

Income Approach (NOI ÷ Cap Rate)
Sales comparison
Replacement cost (less common)

NOI is gross income minus operating expenses, before debt service and taxes. It is the foundation for valuation and investor returns.

Cap rate is the rate of return on a property assuming no debt:
Cap Rate = NOI ÷ Purchase Price
Lower cap = lower risk / higher price
Higher cap = higher risk / higher return

Typical ranges:
20–25% for stabilized properties
25–35% for value-add or special-use
10–15% for SBA-eligible owner-users

Common options include:
Conventional bank loans
SBA 7(a) & 504 loans
Credit unions
Life insurance companies
Private and bridge lenders
Seller financing

Due diligence typically includes:

Financial review (rent roll, T-12, P&Ls)
Lease analysis
Property condition reports
Environmental studies (Phase I ESA)
Zoning and legal review

Typical timelines:

Under contract to close: 60–120 days
Larger or complex deals may take longer

Common lease structures:

NNN (Triple Net) – tenant pays taxes, insurance, maintenance
Modified Gross
Full-Service Gross
Percentage Lease (common in retail)

A rent roll is a summary of all tenants, showing:

Rent amounts
Lease terms
Expirations
Escalations
Occupancy

Tenant credit affects:

Property risk
Financing terms
Cap rate
Strong tenants improve stability and valuation.

Key steps include:

Cleaning up financials
Updating rent rolls and leases
Addressing deferred maintenance
Understanding realistic market pricing

It depends:

Leased = income stability, better financing
Vacant = flexibility for owner-users or redevelopment

Seller costs often include:

Brokerage commissions
Title and legal fees
Prorations
Negotiated credits or concessions

Common risks include:

Tenant vacancy
Lease rollover
Interest rate changes
Market downturns
Capital expenditure requirements

Value-add strategies include:

Increasing rents
Reducing expenses
Re-tenanting
Repositioning or redevelopment

A 1031 exchange allows investors to defer capital gains taxes by reinvesting proceeds into like-kind property within IRS timelines.

Returns vary by asset class and risk profile, but commonly measured by:

Cash-on-cash return
IRR
Equity multiple
Cap rate at exit

Typical contingencies include:

Due diligence
Financing
Environmental
Title and survey
Zoning and use approval

Buyers may:

Renegotiate price
Request credits
Require repairs
Terminate the contract within contingency periods

Earnest money typically becomes non-refundable after due diligence ends, unless otherwise negotiated.

Unlike residential, commercial contracts are often heavily negotiated and customized.

A commercial broker provides:

Market intelligence
Financial analysis
Access to off-market deals
Negotiation expertise
Risk mitigation